In a week where little movement was anticipated, we have seen market volatility swings including the cable of over 5.5%. The pound to Greenback has seen ranges from the high 1.11s, to today’s highs of over 1.1750, the highest rate for almost a quarter.
It began Tuesday with the US midterms, which the Republicans are currently winning by a smaller majority than previously expected. The Democrats seem to have managed to stave off the “red wave” that was expected. Perhaps most interestingly was Ron DeSantis’s rise to be the new poster boy of the conservatives. Former President Donald Trumps’ demise started after endorsing several candidates that failed to win their seats, and a number of key members of the party withdrawing their support for Trump. It now looks increasingly likely, that it will be DeSantis and not Trump who will be the Republican candidate for the next Presidential election. Markets saw the USD drop off against several major currencies following these ongoing results. The Democrats are now almost certain to lose control of both the congress, and the senate, making it considerably harder to get legislation passed.
With little else out this week, attention turned to Thursday, with CPI inflation data in the United States taking centre stage. Markets were expecting inflation to come in marginally lower than last month’s figures, even though the Fed have been saying for some time now, they expect the inflation to drop off considerably. The Fed’s prediction turned out to be correct, with core inflation dropping to 0.3% (EXP. 0.5%) and the other CPI figures, coming considerably lower than was already priced into the market. This has led to traders expecting a considerably lower terminal interest rate than what was already priced into the market, and a slow down in the interest rate hikes from the Fed, making the USD, at last, risk off.
GDP figures, out early this morning, came in worse than anticipated with it contracting 0.6% m/m, meaning that the UK has now seen its growth figures come in negative, for the 3rd month in a row (a key milestone to confirm the UK is now in a recession). However, the sterling has remained up against most major currencies, most notably the USD, where we have seen multi-month highs. It seems as if we might finally get some respite from the crippling rates seen in the last few months.
Looking forward, the UK awaits the delayed budget scheduled for next week. We are expecting to see a considerable cutback in government spending, which could see the Sterling gain further against the G7 currencies as confidence returns to the UK market. With any luck, this will not be marred with another government scandal like this week’s bullying and I’m A Celeb scandals, which are the latest in a long line of Conservative setbacks.
